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Week's balance: Expanding "red" quarantine zones, new yearly gas prices for households, and higher inflation pace

23:00, 11.04.2021
4 min. 2317

Due to the increase in the coronavirus incidence, Kyiv and more than a dozen regions across Ukraine have tightened quarantine restrictions, the national regulator approved the terms of yearly gas contracts for households, while the State Statistics Service declared the acceleration of inflation – these are the key economic developments of the outgoing week.

Local authorities in a number of Ukrainian regions have decided to restrict the population's economic and social activity by tightening quarantine restrictions amid yet another COVID-19 spike.

While in the first days of April there were ten regions in the "red" zone, in the outgoing week, due to daily cases approaching 20,000, the capital city and a number of other regions followed in their steps.

In Kyiv, stricter restrictions were enacted on Monday, April 5, to last until April 16 inclusive. However, if the daily cases continue to rise, it is highly likely that the Kyiv lockdown will be extended into mid-May.

All schools and kindergartens in the capital have been closed. Catering establishments operate in take-out and/or delivery mode only. Public transport, including the metro, carries holders of special passes exclusively. Also, cinemas, museums and shopping centers have been told to shut down, while residents have been obliged to wear masks in all public settings, including outdoors. Many employees have been transferred to remote work or told to get a vacation. Law enforcement are monitoring compliance with the lockdown.

First rallies started across regions where entrepreneurs and employees demanded decent compensation for their idle time.

As for transport links between regions, railway operator Ukrzaliznytsia never changed train schedule and no additional restrictions have been imposed. At the same time, face masks are now mandated on trains and at railway stations.

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Since April 9, following Kyiv, Zaporizhia and Khmelnytsky regions have been put in the "red" zone.

From April 11, Kharkiv region will follow suit, while from April 10, Ivano-Frankivsk region is set to ease quarantine curbs.

Chair of the Verkhovna Rada Committee on Nation Health, Medical Assistance and Health Insurance Mykhailo Radutsky says Ukraine has become one of the world's "leaders" in terms of COVID-19 mortality.

"Unfortunately, Ukraine is also approaching critical indicators for the health care system – we are seeing highs in term of hospitalization and intensive care load," said Radutsky.

Meanwhile, the Ministry of Health says no plan is in the works to declare nationwide lockdown yet, but this may happen if most of the regions find themselves in the "red" zone.

Yearly gas price for households

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The National Energy and Utilities Regulatory Commission (NEURC), on Wednesday, April 7, approved a resolution regulating the terms of the yearly contract for household gas supplies, which consumers will have to sign by default from May 1, 2021.

"This will eliminate gas price turbulence," said the regulator chief, Valeriy Tarasiuk. "The price will be the same."

The Commission obliged all gas suppliers to publish on their corporate websites gas prices, which will be valid from May 1, 2021 to April 30, 2022.

All domestic gas consumers will be transferred to a yearly contract from May 1 automatically, without the need to submit additional documents. Also, gas companies are allowed to offer citizens monthly gas tariffs. To switch to them, the consumer will have to submit an appropriate application. In addition, consumers retain the right to switch to another gas supplier.

The regulator has also obliged suppliers to notify consumers about the change in the tariff plan.

At the same time, the NEURC allowed gas suppliers to make own decisions on whether or not to allow consumers to return to a yearly contract after those switch to a monthly one. Also, suppliers are entitled to decide whether to accept back for service consumers who flipped to another supplier.

The NEURC stressed that under the yearly contract, suppliers are not banned from lowering the price, while any raise is forbidden.

Rising inflation

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In the outgoing week, the State Statistics Service reported the acceleration of inflation in March. Consumer inflation last month amounted to 8.5% on year, accelerating from 7.5% in February.

Inflation in the consumer market in March compared to February 2021 stood at 1.7%, while in the first quarter of 2021 it was 4.1%.

According to the National Bank Governor, Kyrylo Shevchenko, inflation in the first quarter of 2021 turned out to be above the forecast, however, the regulator is ready to apply the key rate instrument if necessary, also expecting a break in the dynamics of inflation in August-September.

"The inflation rate is accelerating. Our task as NBU is to prevent this from becoming a dangerous trend. We have an effective tool to this end – the key rate, and we don't hesitate to apply it if necessary," Shevchenko said.

He added that the rise in inflation was caused, in particular, by the increase in world prices due to the actions of China, the recovery of world economy, as well as a rise in the minimum wage in January to UAH 6,000.

Reduction of gold and foreign exchange reserves

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Last week, the National Bank announced that Ukraine's gold and foreign exchange reserves had shrunk by 5%, to $27 billion over the past month. The slide is being observed for the fourth month in a row already.

As the NBU explained, the reduction in reserves this March was due to significant volumes of payments on the government's external and domestic liabilities, but they were partially offset by the state's foreign exchange earnings.

The total volume of payments to service and repay the state debt in foreign currency this March amounted to almost $1.3 billion.

In particular, $570.5 million was spent on servicing Eurobonds, $325.2 million - on servicing and redeeming government bonds, and the rest – on fulfilling other government obligations in foreign currency.

At the same time, foreign exchange earnings from the issue of government bonds amounted to $473.7 million. In addition, in March, $508.2 million was paid in favor of the country's key creditor, the International Monetary Fund.

Optimism of economy minister

Last week, the Ministry for Development of Economy, Trade and Agriculture reported that the drop in Ukraine's GDP in January-February amounted to 2.8%.

"In January-February 2021, the reduction in the composite production index was 4.2%. Almost all types of economic activity, except for domestic trade, contributed negatively to the index dynamics. As a result, the reduction in GDP is estimated at 2.8%," the ministry said.

At the same time, economy minister Ihor Petrashko said that the 4% drop in the Ukrainian economy at the end of last year was one of the world's lowest.

"In 2020, Ukraine's GDP decreased by 4%. This is one of the world's lowest rates. I believe we've done enough of the right things to minimize the decline and lay the foundation for long-term growth," Petrashko said.

In the outgoing week, the IMF released its forecast for the growth of the Ukrainian GDP this year at 4%, followed by a slowdown in 2022 to 3.4%.

The fund also predicts a decline in unemployment from 9% last year to 8.6% in 2021 and 8.4% in 2022.

In the coming week, there is a possibility that the legislators will meet again for an extraordinary plenary session.

In addition, mid-April will bring a long-awaited warming, which will allow most cities to complete the heating season, and agrarians – to intensify the sowing campaign.

The State Statistics Service will publish data on the financial performance of large and medium-sized enterprises for 2020, as well as on the volume of foreign trade in goods for February.

Public attention will also be riveted on the pandemic developments and on whether the tough measures taken by local authorities will help reduce the incidence rate.

Bohdan Slutsky

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